With 2022 coming to an end, StrategicCFO360 is looking back on an extraordinary year. Although it began in an outbreak of Omicron, the nation quickly recovered, and many businesses saw unprecedented demand. This demand persisted, despite rampant inflation—so much so that goods and labor shortages became the norm. Russia invaded Ukraine, igniting the first European land war since WWII and further disrupting global supply chains. Talk of recession escalated. Business leaders have been tested constantly in recent years and have learned to prepare for the worst. But had they prepared for that degree of disruption?
Turns out, most were hoping for greener pastures.
When asked, in December 2021, to forecast where the Dow Jones Industrial Average would close 2022, the majority of the 127 CFOs we polled said between 35,000 and 40,000. (The majority of CEOs predicted the same.) The year hasn’t ended yet—and there’s still room for a Santa Claus rally—but right now the prediction looks a bit over the final tally—though it could also be considered fairly conservative considering the forecast was made before the onslaught of events that unfolded a few months later.
CFOs were also asked whether the U.S. would experience a recession in 2022. While there’s still ongoing debate over whether the U.S. has technically been or remains in recession, 54 percent gave us a flat out “no.” Two out of five CFOs said there would be a recession, but that it would be mild.
And although the GDP numbers fell twice in a row in Q1 and Q2 of this year, according to the Bureau of Economic Analysis, fitting the unofficial definition of a recession (two consecutive quarters of negative economic growth), unemployment continued to fall and demand didn’t recede until later on. The nonprofit National Bureau of Economic Research, the official arbiter of recessions, never declared a recession.
So which CFOs had it right? It’s still up for debate. What can be said is that Google searches for “recession” and “Are we in a recession?” between October 2021 and December 2022 peaked in June 2022, with both terms being searched more than three times as often now, compared to one year prior.
And for what it’s worth, a higher proportion of CFOs than CEOs were expecting a recession, at 46 percent vs. 39 percent, respectively. What’s more, in the same month that searches for “recession” and “Are we in a recession?” peaked, the CEO Confidence Index from our sister publication Chief Executive reached its trough.
The kicker perhaps is when CFOs were asked about inflation. Forty-three percent predicted inflation would get worse in 2022, compared to 2021, though only 6 percent forecasted inflation would get “much worse,” compared to 11 percent of CEOs who predicted the same.
Inflation had peaked at 7 percent the same month we asked CFOs to forecast 2022. It’s tough to say who got it right between those who said it would get worse and those who said it would get much worse. On one hand, we did experience the highest inflation in 40 years this year, but the peak was not too far off the December levels, hitting 9 percent in June 2022. So, it’s safe to say that the 49 percent of CFOs who predicted that inflation would worsen—to any degree—had it correct.
CEOs weren’t too far off either, with 48 percent predicting that inflation would worsen, to any degree.
Fed policy was also an item on the December survey. CFOs were asked to predict the Fed Funds Rate/Prime rate by December 2022. Nearly everyone expected it to increase from its December 2021 level, but most had expected the increase to be between 0.5 and 0.75 percent. Only 12 percent predicted increases above 1 percent—and looking at the answer choices on the board, neither did we. The Fed, of course, has raised rates 0.75 percent four times this year.